Show Me the Cash in Private Company Stock

In company sell transactions, secured and unsecured promissory notes, public and private company stock, short and long term earn-outs, all consideration has to be measured to its equivalent value in cash. Equivalent cash measurements allow for the meaningful comparison of offers by Sellers, and it is necessary to enable Sellers to make rational and informed decisions.

Today, after selling their business, many Sellers wish to remain active in their industry, and have shown a willingness to accept the private company stock of Buyers. In many transactions, the stock of the Seller may be rolled-over into the ownership of the Buyers’ acquiring company, tax-free, deferring the liability until a later date.

Sellers have to seriously consider all deals offering 5% to 15% of the consideration in the Buyers’ stock. A “put option” at an acceptable strike price allows the Seller to sell the stock back to the company for cash, a liquidity guarantee. When properly structured, the Buyers’ stock may also provide the original Seller with a second opportunity to “swing for fences.”